Stressed over making monthly mortgage payments?
Many older Americans are still making mortgage payments in their 60s, 70s and even 80s when they may not have to—but how is that possible? A reverse mortgage enables homeowners age 62 or older to pay off their existing traditional mortgage by using the funds from a reverse mortgage. (Although there is a new option that makes the product available for borrowers as young as 60 – more on that later!)
Here are five reasons to consider a reverse mortgage if you currently have an existing traditional mortgage payment. Note, this is not tax advice; you should consult a tax professional regarding your own individual situation.
- Stop Monthly Mortgage Payments and Add to Savings—Because you can use a reverse mortgage to eliminate your monthly mortgage payment, you can add the amount you save each month to your savings or simply use the funds to help pay your other bills. As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, maintenance, and any homeowners association fees.
Consider John and Jane: They use a reverse mortgage to eliminate their monthly mortgage payment of $1,000. Assuming they had 120 payments left, the reverse mortgage helps them preserve $120,000 over that 120-month period and reallocate those funds to their monthly living expenses and their savings accounts.
Tip: To calculate your potential mortgage savings, multiply the amount of your monthly payment by the number of payments you have left. This equals the amount of funds you can redirect to savings, or to help pay your expenses.
- Avoid Qualified Withdrawals to Reduce Taxes**—If you are withdrawing IRA monies to pay your mortgage, you are incurring taxes to do so. For every $1,000 you draw out of your IRA to make a mortgage payment, you may be incurring $250 in taxes! (For illustrative purposes, this figure assumes you have a 25% effective tax rate.) A reverse mortgage may be able to keep your IRA monies in place, plus avoid paying taxes on the withdrawals.
Consider this: If you were to avoid $250 in taxes per month for 120 months, that would result in a $30,000 tax savings!**
- Cash Out—In addition to eliminating existing mortgage payments, a reverse mortgage may also provide you access to income-tax-free funds.**
Scenario #1: Bill and Nancy are a 70-year-old couple with a home worth $400,000 and outstanding mortgage of $75,000. They qualify for a reverse mortgage of $163,600. After using the reverse mortgage to pay off their traditional mortgage, they still have $75,000 available to them after closing costs. They can choose to convert the $75,000 into income-tax-free** funds of $476 per month. If they live in the home for another 20 years, Bill and Nancy will have collected $114,240 in income-tax-free funds.*** These funds will last for as long as one of them lives in the home as their primary residence, when the last borrower (or qualified non-borrowing spouse) has died, sold the house, has been absent for a majority of the year for a non-medical reason, or has vacated the home for more than 12 consecutive months due to mental or physical illness (for example, has moved temporarily into an assisted living or nursing home).
Scenario #2: Bill and Nancy can establish a credit line of $75,000, which is available to them if and when they need it. A unique feature of the credit line option is that the amount available will grow monthly if left untouched—that means that the original $75,000 credit line would grow to $279,577 after 20 years, regardless of what happens to the value of their home during that period.†
- FLEXIBILITY—One of the unique features of a reverse mortgage is you do not have to make payments on the loan. You can make payments at any time, but that choice is completely up to you! This flexibility gives you the ability to use your money for other goals. And it can be important to have these available funds when your monthly cash flow changes. As with any mortgage, you must meet your loan obligations, keeping current with property taxes, insurance, maintenance, and any homeowners association fees. Using a reverse mortgage strategically, according to several financial researchers, can help you maximize its benefits.
- PEACE OF MIND—Having one less bill to pay each month may reduce your anxiety and allow you to enjoy your retirement, which may be more important to you than any cost-benefit analysis of a reverse mortgage.
Reverse Mortgage Funding LLC (RMF) offers more than Home Equity Conversion Mortgages (HECMs), which is a traditional government-insured‡ type of reverse mortgage. A new loan product, Equity Elite Reverse Mortgage, is now available to homeowners age 60 and older (2 years younger than with a HECM) – plus, Equity Elite Zero eliminates almost all lender fees. To learn more about how a reverse mortgage works and how it could help relieve you of the burden of monthly mortgage payments, call a knowledgeable reverse mortgage specialist at Reverse Mortgage Funding today at 888-277-1567 or visit our instant reverse mortgage calculator.
SEE WHAT FUNDS YOU MAY HAVE AVAILABLE
If you have equity in your home and believe you meet the eligibility requirements, a HECM may be the option that could help you retire smart.
*As with any mortgage, you must meet your loan obligations: keeping current with property taxes, homeowners insurance, maintenance, and any homeowners association (HOA) fees.
**Consult a tax professional.
*** Certain conditions and fees apply. The information being displayed is for illustrative purposes only. Assumptions are: (1) 70-year-old borrower; (2) IN home valued at $400,000; (3) HECM ARM Annual as of June 28, 2018; (4) The initial interest rate is 5.902%, adjustable interest rate tied to 1-YEAR LIBOR with a margin of 3.125%; (5) Annual Percentage Rate (APR) is 5.902%. Maximum Annual Percentage Rate (APR) is 10.902%. Rates and funds available may change daily without notice.
†If part of your loan is held in a line of credit upon which you may draw, then the unused portion of the line of credit will grow in size each month. The growth rate is equal to the sum of the interest rate plus the annual mortgage insurance premium rate being charged on your loan.. Certain conditions and fees apply. Information shown for illustrative purposes only. Assumptions are: (1) 70-year-old borrower; (2) IN home valued at $400,000; (3) LOC will grow at .5% above the interest rate for an Adjustable Rate Mortgage (ARM), which uses the 1-Year LIBOR plus a margin of 3.125%. The initial interest rate is 5.902% which can change annually. There is a 2% annual interest cap, and a 5% lifetime interest cap over the initial interest rate. Maximum interest rate is 10.902%; (4) the growth rate remains at 6.40%; (5) Annual Percentage Rate (APR) is 5.902%. Maximum Annual Percentage Rate (APR) is 10.902%; (6) there are no draws taken from the line of credit by the borrower. Rates and funds available may change daily without notice.
‡This material has not been reviewed, approved or issued by HUD, FHA or any government agency. The company is not affiliated with or acting on behalf of or at the direction of HUD/FHA or any other government agency.
Equity Elite Reverse Mortgage (“Equity Elite”) is Reverse Mortgage Funding LLC’s proprietary loan program, and it is not affiliated with the Home Equity Conversion Mortgage (HECM) loan program, which is insured by FHA. Equity Elite is available to qualified borrowers who also may be eligible for HUD, FHA’s HECM program or are seeking loan proceeds that are higher than HUD, FHA’s HECM program limit. Equity Elite is available only for eligible properties in select states. Please contact your loan originator to see if it is currently available in your state.
Upon a maturity event, any non-borrowing individuals with an ownership interest in the property, including non-borrowing spouses, will have 90 days to purchase the property from the estate or, if the non-borrower inherits the property, pay the loan in full using any sources of funds available to them. Any non-borrowing individual, including a non-borrowing spouse, should have a plan to pay off an Equity Elite reverse mortgage upon the borrower’s death or any other maturity event. If the non-borrower is unwilling or unable to purchase the property or pay the loan in full, there is no protection for the non-borrower (including a non-borrower spouse) to maintain an interest in the home or to continue residing in the home past the maturity event and the non-borrower may be evicted upon foreclosure. The FHA HECM program has protections in place for certain non-borrowing parties, so a reverse mortgage applicant with certain non-borrowing parties should strongly consider a FHA-insured HECM loan (see HECM guidelines or ask an RMF representative for details). Under the Equity Elite reverse mortgage loan program, a maturity event occurs when the last surviving borrower no longer lives in the home as his or her primary residence for at least 12 months, the property charges (including taxes, insurance, HOA dues or any other property charges) are not paid, required repairs are not completed or the property is not maintained, or any other maturity event, as specified in the Security Instrument, occurs.